Asked by Martha Lucia on Jun 13, 2024
Verified
Suppose the future value of $1 after x years is $5. What is the present value of $1, x years before its scheduled payment date? (Assume the same interest rate in both cases.)
Present Value
The immediate valuation of an upcoming sum of money or series of cash transactions, based on a given rate of return.
Future Value
The value of an investment at a specified date in the future, taking into account interest or capital gains.
Scheduled Payment
A pre-determined amount of money that is paid at regular intervals according to a repayment plan, such as a loan or mortgage.
- Assess the current value of a forthcoming sum, factoring in the money's value over time.
- Utilize the principle of discounting to calculate the current value of future cash flows.
Verified Answer
BK
Bharat Kumar SridharanJun 17, 2024
Final Answer :
If the future value is 5 times higher x years later, the present value x years earlier will be 1/51 / 51/5 of the payment amount. That is, the present value of $1, x years earlier, is $0.20.
Learning Objectives
- Assess the current value of a forthcoming sum, factoring in the money's value over time.
- Utilize the principle of discounting to calculate the current value of future cash flows.